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How to make millions before retirement - SLOW INVESTING

Discussion in 'BlackHat Lounge' started by Retraction, Jun 3, 2014.

  1. Retraction

    Retraction Junior Member

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    So this thread is not about investing in this stock or that stock. Stocks are volatile and subject to extreme price swings at any given time. It is not wise to invest too much money in stocks. This thread is what I am doing right now and I am on a path to make a small fortune by the time I've retired. The gist of this method is investing in index funds into an IRA account. Compound interest will make your contribution rise exponentially. Also, I am not allowed to post URL's yet since my account is not old enough. Apparently 3 months being a member is not old enough. Just remove the dashes in the coded link and it will bring up the page. So I apologize beforehand.


    1. IRA's


    There are two types of IRA's - traditional IRA and Roth IRA. The basic difference is that traditional IRA contributions are tax deductible - meaning that it is deducted from taxable income. At withdrawal, you must pay income tax on contributions AND earnings. With a Roth IRA, contributions are taxed. However, at withdrawal nothing is taxed generally. The catch to both of them is that you must be 60 years old to withdraw, or both will be subject to penalties.




    2. Investment


    An index fund is a mutual fund that mirrors an entire market. For example, an S&P index fund will invest in all the individual securities in the S&P fund and just leave it. This is called a passive mutual fund because no one is touching it, the market moves the price, not people. Since there aren't expensive portfolio managers managing these funds, expense fees are extremely low.


    Not only are expense fees low, but it has been proven that the stock market has a steady growth of 9%.


    Code:
    h-ttp://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

    As you can see, the S&P had a return rate of 9%, even with the 2008 recession. Therefore, low expense fee coupled with high, steady growth is the perfect recipe for COMPOUND INTEREST.


    3. Compounded Growth


    Lets say you are age 22, fresh out of college and a new job. You have so much money, you just decide to stash it into a savings account with maybe 2% interest. 2% interest isn't going to do shit for you. Make an IRA and invest in an index fund.


    So you have $10,000 in the savings account and make an IRA. You buy the fund and contribute $300 monthly to it. Retirement age is 65, so you have 43 years to contribute. At 9% "interest", you will make: $2,336,629.32
    That is a shit load of money. $2 million dollars! That, my friends, is the magic of the stock market. Even in times of depression you will have a positive rate of return. Use this website and play around with the numbers and you will get the gist of it


    Code:
    ww-w.moneychimp.com/calculator/compound_interest_calculator.htm

    Put compound interest annually at 12, since you are contributing monthly. Interest rate is 9%, since that is rate of return of S&P 500.


    I hope you enjoyed this guide my friends, let this be an outline of your retirement plan.
     
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  2. systematic

    systematic Regular Member

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    Actually a decent post, but sadly, most people on BHW are more interested in "get rich quick" schemes.
     
  3. SeanAustin

    SeanAustin Power Member

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    Savings accounts are for children. Nice little post. I didn't know much about IRA's until
    reading this and then doing some research so thanks for bringing it to my attention.
     
  4. asap1

    asap1 Jr. VIP Jr. VIP

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    Shit putting $300 a month into a bank account is like paying a car note.

    Its east to say bu actually doing it is the hard part but non the less this is a good post.
     
  5. ironmanx

    ironmanx Newbie

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    Thanks this is awesome. I have invested in the S&P starting this year and have right around the return rate you mentioned. You can't complain about ~10%.
     
  6. Retraction

    Retraction Junior Member

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    It requires a lot of discipline, especially in periods of recession. One way to alleviate some stress is to to invest in bonds. They have lower interest, but are less riskier. Mutual funds are also very low risk, but some people can't handle the stress in recession.
     
  7. wriper

    wriper Senior Member

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    Well this is only for US citizens right?
     
  8. davids355

    davids355 Jr. VIP Jr. VIP Premium Member

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    Aughrr too long to read :)
     
  9. jazzc

    jazzc Moderator Staff Member Moderator Jr. VIP

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    Apparently the accounts mature with contribution and not with age.

    40% tax leaves 1,401,977 43 years from now which (assuming inflation is the same as it is in the "now - 43 years" period) makes it $239,428.98 in today 's money.

    $240k in 43 years doesn't exactly strike as a "shitload of money"
     
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  10. Retraction

    Retraction Junior Member

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    The only way you are getting taxed 40% is if you are the top 1% of income earners in USA. The average income of an average American is around $50,000, which falls under the 25% tax bracket. You have also over-evaluated inflation rate. 2014 inflation rate was 2%, up from 1.5% in 2012. Also, you accounted for inflation before tax which has no logic.

    If we do the correct evaluations, inflation rate at 2% will make 2.3 million turn into roughly a million dollars. At 25% tax rate, we have $750k. The fact we only contributed $150k and turned it into $750k is impressive.

    This is also a low-risk plan. You can propose stocks, but stocks are not a long-term option as volatility can make or break the bank. Higher risk equals higher rewards, but sometimes people focus only on the high rewards and completely ignore risk. I haven't seen a better retirement plan yet.
     
  11. jazzc

    jazzc Moderator Staff Member Moderator Jr. VIP

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    A traditional IRA is taxed as income at withdrawal. $2 mil pre-tax income will probably put you in the highest bracket even in 43 years, ergo -> 40%.

    No, I did not do either of that.
    http://www.dollartimes.com/calculators/inflation.htm - plug 1971 | 2014 | 1,401,977 and see what comes out.
     
  12. Panther28

    Panther28 Elite Member

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    This post reminds me of the days i used to think i had to prove to other people it was possible to get rich. After time i learnt that only 1 person really cared about my opinion. Once i then learnt the meaning of opinion, i changed my gameplan on the battlefield.
     
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  13. spasovski

    spasovski Regular Member

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    Wow, now that's some stupid advice right there.

    If you ask every successful entrepreneur he will tell you:

    Don't save money to save, save money to invest!

    And Jazzc said it right!
    By the time you get to use those savings, you are left with a huge pile of peanuts. Good luck with that!

    I just read a story on entrepreneur.com about a guy who failed at everything all his live. Absolute failure! Until his friend finally advised him to buy a barn and just waste his life there. It turns out that he's been drinking whiskey all his live and got interested into the whiskey making business. Couple of years later he is producing whiskey and has a brand of his own worth millions. He's forty something years...

    Get rich or die trying...
     
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  14. facebookdude

    facebookdude Elite Member

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    Yeah the numbers don't add up. Also, you can only withdraw when you're 60!? You could die tomorrow. Also, the way the planet is going in 40 years who knows what the earth/society will be like.

    Just sounds like a really average investment.
     
  15. partymarty4870

    partymarty4870 Elite Member

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    meh - it won't beat property investment
     
  16. NoirHat

    NoirHat Regular Member

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    precisely what others have said..
    you wanna get rich? well it's not gunna happen with saving in an IRA.

    Rich people compound and leverage and do it FREQuently
     
  17. flipzseo

    flipzseo Regular Member

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    I prefer directly investing into stocks that have been able to pay a rising dividend for at least 10 years, usually 20+, and reinvesting the divvy's. I also make sure those stocks dividends grow at least 7% anually. You need to stay on top of it for sure and research the company before investing and continue to check up on financials/growth, but I oddly enjoy doing that so it makes it a hobby for me.

    The majority can't stomach that game though. Whether it be impatience or piss poor timing (panic/euphoria move the market) most people lose in the end. I contribute to a 401k (company match, why not), Roth and brokerage account regularly. If you don't have a large amount, something like Loyal3 or Computershares is pretty cool to dollar cost average into stocks commission-free.

    I think it's good to invest in the stock market if you have a plan and goal. It's also wise to invest in other things like property, your own businesses and most importantly, yourself.

    And sometimes, I'm just like... well I'm pumping my gas at Chevron(CVX), looking at the long ass line across the street in the McDonalds drive-thru(MCD). I'm sure plenty are ordering drinks with their meal like Coca-Cola(KO) or Pepsi(PEP). When I get done pumping my gas I hop in my car and before I leave I see a guy walking out the store with a carton of Marlboro's(MO).
     
  18. JoeMongan

    JoeMongan Jr. VIP Jr. VIP Premium Member

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    Nice way to end up eating bread crumbs and dog food.

    -RK
     
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